Let146;s not pay the price for panic

We are speaking the language of crises again. This is okay as long as we take all the required action.

We are speaking the language of crises again. This is okay as long as we take all the required action. In a land of more than a billion people the stakes are as usual high. We are, as we have argued before, getting close to becoming the world8217;s third-largest economy if we keep our act together, as we have done even in the decade of coalitions. If we don8217;t we will go to number five and the world never remembers the 8220;has beens8221; of history. The first thing to tell ourselves is that, in spite of all the complaints from people like me, we have a solid record to go on. High growth is now recognised. Whether it is telecom, airports or even the management of some cities, the performance is superb, even though we revel in talking of the underbelly of energy, agriculture and rising inequalities.

The second is that whenever we have faced crises we have come out kicking. We were the first country to come out of the first energy crisis with a negative rate of inflation, as our then finance minister put it, and went on to achieve self-reliance in food. In the droughts of the late 8217;80s, we turned adversity to advantage and reached a new plateau in agriculture. During the East Asian financial crisis, we prospered. We always had a road map and the world criticised us, but we persisted. Let us do it again. The third is that, apart from the impatience shown by foreigners and the opposition, Bharat admires those who solve problems, and politics anyway is played on another scale.

When Edmund S. Phelps got the Nobel for economics in 2006 we were silent, for he revels in that area where fiscal, monetary and trade policies interact and the great trilemmas are resolved. Somehow the policy debate in India borders on triviality and soundbites. In Ahmedabad, the secretary of the farm market explained that vegetable and fruit prices were rising since the best quality was bought by the retail chains and sold to those who can afford it. The answer is not to control the retail chain, as he seemed to suggest, and reduce the price the farmer gets. Construction values are rising on account of cement, steel and imported goodies in houses and again the answer is the same. Interest rates can go only so far. Anyway, if you raise them the choice for the FIIs is to buy more rupees which you will then sterilise. Fiscal and trade policy instruments are far more potent in cooling the economy and no one talks of them.

The road map cannot be of the control raj. I am a lefty strategic planning type, but, coming from western India, I have a healthy respect for the market. In my first invited job in Delhi in 1974, at the then powerful Planning Commission, I got a file saying that price control should be enforced on Ambassador cars. I argued that we should decontrol it. My boss, a doughty ICS officer, glared at me and said, are you mad, Yoginder, the car will sell at Rs 80,000. Nervous, I did the worst thing, lit a cigarette. No one would smoke in his presence, and he testily called for an ashtray. I blurted out, sir, I don8217;t agree with 80,000, it will sell at a lakh, but, who cares, we will tax it and fund irrigation.

As we decontrolled, many essentials had dual prices but the logic developed by autonomous groups was always transparent and the exercises behind the prices could be challenged in courts. The case law on proving cartelisation in India is fascinating, and evidence on prices moving together is not serious since in a good market, after the event, prices will always be seen as moving in the same direction. The hapless civil servant who briefed the MOS to say in Parliament that there was no evidence of cartelisation in steel must have been in trouble.

This is also the time to reform where we get technology and investment in sectors like energy, with improved supply chains and restricted inessential demand in the short and medium periods. The question has to be answered as to why foreign investment in the power sector has gone down from tens of thousands of crores in power generation and transmission from 1996/98 to zero under the NDA regime, and has stayed there. Reducing the liquidity overhang does not mean a recession if we have our sights clear since this is still an investment-starved country. Also, would our politicos and others stop giving us lectures on inflation as a global phenomenon and let the poor economists walk the talk? We are not a banana republic, have beaten pressures earlier, and will do it again.

The writer is a former Union minister for power, planning and science, and was vice-chancellor of JNU

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